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Do you treat your inventory or stockroom like a bank vault?

 

by Blair Bass
Practice Leader at Charles Aris Inc.

Do you treat your inventory or stockroom like a bank vault? Well, you should.

Inventory is typically the second largest investment a company makes behind its employee spend. Yet I have visited company after company where inventory is lying all around a production floor, with little to no accountability for it. Chasing inventory, inventory shortages and inventory discrepancies wastes a lot of time in many organizations.

There’s a host of subject-matter experts who talk about inventory management, but I’d like to offer four thoughts about inventory management in comparison to the proper management of a bank vault.

One: Receiving skills

One of my favorite questions to ask executives during my many consulting engagements was this: “If you knew your bank was going to make one mistake (because no one is perfect) and you could choose to have it on a deposit going in or a check going out, which would you choose?” Though I usually received the humorous exception about a million-dollar outbound check, of course the answer is to never let the mistake be on an incoming deposit. Logically, if you make a mistake on a deposit, every transaction after that has a greater likelihood of error.

Yet I’ve found in most every company that I’ve partnered with that the receiving position is usually considered to be one of the least skilled and, typically, lowest paid positions in a company. Now I wouldn’t suggest that you need a rocket scientist in this role, but I would recommend that we ensure we have the best skill sets in place to recognize product and perform accurate counting. Just think of all the time we spend reconciling supplier invoices and chasing material that we thought we had in stock just because we couldn’t count it correctly coming in the door.

Two: In / Out transactions

Do you believe your bank would allow any deposit or any money issue without the proper tracking transaction? Of course not – and we shouldn’t allow inventory in and out of our stockroom without the proper accounting transactions as well. Proper record keeping enables us to know which supplier to pay. It ensures we know which job has the material it needs and which ones are still waiting. And, especially in the Aerospace & Defense world – where we’re concerned about comingling regulations and cost-plus contracts – proper documentation enables us to update all of our project inventory and percentage-of-completion billings accurately.

Three: $100 on the floor

Have you ever walked into a bank where money is just lying all around the floor? Well, I’ve seen it on most production floors I’ve worked on. One statement I used to always make when performing inventory management training was, “I could walk around and trip over the same inventory day after day because no one bothers to check on it, but I bet if I dropped a $100 bill on the floor it would be picked up immediately!” That inventory lying around really is a $100 bill – or a $500 bill or a $1,000 bill – lying around. It’s just that it’s the company’s dollar bill instead of your personal dollar bill. If everyone treated every single piece of inventory lying around like a $100 bill lying on the floor, we’d have better control of our inventory.

Four: Open-door policy

Have you ever seen a bank vault that has an open-door policy? Just come get what you want at any time? Sounds crazy, right? (Unless you’re the first one in the door). I visited a client once who had asked me to research why they kept “losing” inventory – and to offer suggestions on inventory management. I walked out on their production floor, where the stockroom was located right in the middle. It was all fenced in and I had to go through a security check just to get into the stockroom. My first impression was that this is a highly controlled environment. As I was walking around the stockroom, I came to the back corner, where I saw another door that had been cut into the fencing and was wide open. I asked the operations manager what this door was for, and his response was that “the production people kept complaining that the stockroom was too slow, so they opened up a door for the production staff to come get their inventory whenever they needed it to speed up the process”. You can probably guess what several of my suggestions to recapture inventory control centered around …

Closing thoughts

For companies which seem to always struggle with inventory accuracy, inventory turns and looking for ways to improve the bottom line by reducing the cost of goods sold dollars, I’d recommend that you analyze all of your inventory controls and procedures as if it was real money being handled the way a bank would handle it … because the truth is: Every piece of your inventory is real money.

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